Contributory negligence in investment arbitration (also known as “contributory fault”) corresponds to situations where an injured party has materially contributed, by a negligent (or wilful) act or omission, to the damage caused by an internationally wrongful act of a State.
The contribution of the injured party is, therefore, taken into consideration by arbitral tribunals in assessing the extent of reparation, i.e., in order to limit or reduce the amount of compensation.
The contributory negligence principle, widely recognised as being consistent with the principle of full reparation,[1] is encompassed in Article 39 of the ILC Articles on State Responsibility:
“In the determination of reparation, account shall be taken of the contribution to the injury by wilful or negligent action or omission of the injured State or any person or entity in relation to whom reparation is sought.”
We discuss the notion of contributory negligence and its assessment by arbitral tribunals below.
Notion of Contributory Negligence in Investment Arbitration
Contributory negligence (or contributory fault) should not be confused with a duty to mitigate losses. Although they are both “compensation-reducing factors”[2], the duty to mitigate losses arises after a breach of an international obligation has occurred.
Furthermore, not every contribution to causation is sufficient in order to establish contributory negligence/fault. In this respect, an action or omission “must represent negligent and reproachable behaviour.”[3] As pointed out by the Yukos tribunal, “the contribution must be material and significant.”[4]
For example, in the Burlington case, the majority of the arbitral tribunal held that two main factors needed to be established to prove contributory negligence/fault: a triggering factor and/or a decisive factor.[5] The majority ruled that Burlington’s conduct was neither triggering nor decisive with respect to the damages incurred. It should be noted that Professor Brigitte Stern disagreed with this position. Instead of referring to the triggering/decisive factor, she emphasized that Burlington’s conduct had played “a major role in the chain of events leading to the expropriation.”[6]
Finally, with respect to the defence of contributory negligence, Respondents bear the burden of proof in order to establish that Claimants contributed to their own damages.[7]
Reduction of Compensation due to Contributory Negligence in Investment Arbitration
The degree of reduction of compensation due to contributory negligence is generally left to the discretion of arbitral tribunals.[8]
For instance, the Copper Mesa v. Ecuador tribunal decided to reduce compensation by 30%[9], the MTD v. Chile tribunal reduced damages by 50%[10], the Occidental Petroleum tribunal by 25%[11], and the same reduction was used by the Yukos tribunal.[12]
However, it is true that the parties involved in the arbitration can deplore the lack of precision in tribunals’ assessment of the degree of reduction, especially when it seems that the tribunal’s findings are not based on any objective valuation method. This was, for example, the case in the annulment proceedings initiated against the award in the MTD v. Chile case, where the Respondent criticized the tribunal’s “failure to state its reasons upon which it diminished the award by an arbitrary and unexplained fifty percent…”[13]
The Committee decided that, although further reasons for the reduction of damages would have been useful, since the arbitral tribunal had analysed the failings of the two parties, it had committed no error by not giving the exact explanation of the calculations involved:
“The Committee agrees with the Respondent that some further reasons for a 50:50 split of damages could have been offered at this stage. But the Tribunal had already analysed the faults on both sides in some detail, holding both to be material and significant in the circumstances. As is often the case with situations of comparative fault, the role of the two parties contributing to the loss was very different and only with difficulty commensurable, and the Tribunal had a corresponding margin of estimation. Furthermore, in an investment treaty claim where contribution is relevant, the respondent’s breach will normally be regulatory in character, whereas the claimant’s conduct will be different, a failure to safeguard its own interests rather than a breach of any duty owed to the host State.
In such circumstances, it is not unusual for the loss to be shared equally. International tribunals which have reached this point have often not given any ‘exact explanation’ of the calculations involved. In the event, the Tribunal having analysed at some length the failings of the two parties, there was little more to be said – and no annullable error in not saying it.”[14]
[1] I. Marboe, “Calculation of compensation and damages in international investment law”, Oxford University Press (2017), 2nd ed., p. 121, para. 3.242.
[2] S. Ripinsky, Assessing Damages in Investment Disputes: Practice in Search of Perfect, 10 J. World Investment & Trade 5 (2009), p. 19.
[3] I. Marboe, “Calculation of compensation and damages in international investment law”, Oxford University Press (2017), 2nd ed., p. 121, para. 3.243.
[4] Yukos Universal Limited v. The Russian Federation, PCA Case No. AA 227, Final Award, 18 July 2014, p. 502, para. 1601.
[5] Burlington Resources v. Ecuador, ICSID Case No. ARB/08/5, Decision on Reconsideration and Award, p. 228, para. 580.
[6] Burlington Resources v. Ecuador, ICSID Case No. ARB/08/5, Decision on Reconsideration and Award, p. 228, para. 580, n. 1113.
[7] Bear Creek Mining Corporation v. Peru, ICSID Case No. ARB/14/21, Award, 30 November 2017, p. 211,
para. 568.
[8] Yukos Universal Limited v. The Russian Federation, PCA Case No. AA 227, Final Award, 18 July 2014, p. 502, para. 1637.
[9] Copper Mesa Mining Corporation v. Ecuador, PCA Case No. 2012-2, Award, 15 March 2016, p. 33, para. 6.102.
[10] Mtd v. Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, p. 90, para. 243.
[11] Occidental Petroleum Corporation v. Ecuador, ICSID Case No. ARB/06/11, Award, 5 October 2012, p. 308, para. 825.
[12] Yukos Universal Limited v. The Russian Federation, PCA Case No. AA 227, Final Award, 18 July 2014, p. 502, para. 1637.
[13] Mtd v. Chile, ICSID Case No. ARB/01/7, Decision on annulment, 21 March 2007, p. 40, para. 98.
[14] Mtd v. Chile, ICSID Case No. ARB/01/7, Decision on annulment, 21 March 2007, p. 41, para. 101.
